HMV faces a shareholder boycott if it launches a rescue rights issue to plug a gaping hole its balance sheet. The struggling music and book retailer last week issued its third profit warning since January, heightening concern about its prospects.

Without a capital injection from investors, HMV must rely on raising cash via asset sales, as well as shutting stores and offloading expensive high-street leases.

Advisers to HMV have told chief executive Simon Fox that a rights call, which asks investors to buy new shares, would be difficult to pull off because of worries about the group's long-term future.

HMV has been hammered by both the downturn and structural changes in the industry that have seen consumers shun its shops and turn to the internet for CDs and DVDs. The group also faces intense competition from supermarkets.

One shareholder said: "It is questionable whether HMV has a business model that is sustainable, and we would need some convincing to support a cash call." Another investor said: "Everyone is asking the same question: 'Would we be prepared to throw good money after bad?'. Fox would have to undertake the mother of all charm offensives to persuade the City a rights issue was a runner."

Because of shareholder hostility, HMV has temporarily shelved the idea.

There is speculation in the market that a plea for funding is inevitable if HMV is to secure its future and restore its balance sheet. But this weekend Fox is focusing on a restructuring plan that would see HMV sell its Waterstone's bookshops and international business to raise around £70m, more than halving debts of £130m.

The company is looking at plans to dramatically shrink the size of its 285-strong HMV estate, shutting dozens more outlets on top of the 40 already earmarked for closure. It could sell on leases to third parties, raising millions in additional funds. Last year, the company was reported to have collected more than £12m when it sold one of its properties in London's Oxford Street to US fashion retailer Forever21.

HMV, whose shares have fallen by about 90% in a year to 11.25p, last week said its annual profit would come in at about £30m, compared with previous estimates of £38.9m. A year ago analysts were pencilling in £80m. Its debt has ballooned because of falling sales, which has squeezed working capital.

The company would have breached banking covenants this month if lenders RBS and Lloyds had not agreed to give Fox two months' breathing space to restructure debts. Adding to its woes, chancellor George Osborne appeared to have written off the chain's prospects last week, inadvertently remarking to the British Chambers of Commerce that it seemed to be too late for any of his tax changes to save HMV.

Banks hope that HMV will sell Waterstone's to a consortium led by Russian tycoon Alexander Mamut and Tim Waterstone, who founded the chain in 1982. Fox said it was "looking pretty tough, out until the autumn". Waterstone's has also suffered from digital competition, with consumers increasingly buying books over the internet from Amazon.

Fox has promised to improve the company's performance by concentrating more heavily on selling technology products such as iPads and Blu-ray players, as well as boost its own digital offering.

But the grim fact for HMV is that about 35% of CDs and DVDs are bought online, yet only 10% of HMV's business happens there. Fox has tried to reinvent HMV by selling clothing and gadgets; it has also entered the live music scene, buying the owner of the Hammersmith Apollo and G-A-Y venues in London, and teamed up with Curzon to open cinemas.

As part of his fightback Fox has sought to reduce the group's massive rent bill by doubling up stores with sister chain Waterstone's, which until recently was also in trouble.

But Keith Bowman, an analyst at stockbroker Hargreaves Lansdown, said: "The group's products are made for the internet, while the supermarkets continue to utilise entertainment products as shop window offerings, with many probably acting as loss leaders in order to attract customers."

For a time, the full scale of HMV's challenges was masked as its stores picked up business in the wake of other high-street failures – most notably Woolworths and Zavvi.